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He was in the IT field since the 90s but worked for a state government and never wanted to take a risk until he married me (according to him). I love travel, but I don't know if I like moving around anymore especially with children. He is in the telecomm industry and has recently accepted a more stable job as a full-time employee as opposed to a contractor. So I think we're going to settle down this time, which was the same thought I had prior when we bought all those homes!
Don't buy a house if you don't plan to live there at least 5 years.
Easiest way to accumulate wealth? I would beg to differ. You can accumulate equity, but that equity is illiquid. IMO, this mind set is part of the reason we've had the housing crash. A home is purely that, a home. It should not be viewed as an investment, nor some vehicle to build wealth. Investing your money into a business, bonds, stocks, etc is how you accumulate wealth.
Brian
I didn't say it was the absolute BEST way to accumulate wealth. I said it was the EASIEST. I doubt that you will find even one financial advisor anywhere who would advise a person to rent all of their life rather than buy a home to live in. And you are assuming that most or all people have discretionary income for investments. And a business? Sure, you can accumulate wealth through building a business. But do you have any idea of the failure rate for small businesses these days? But everyone needs a place to live. The monthly cost of renting vs. buying a home is not that different. Sure, you have maintenance expenses and repairs, but as a landlord, believe me I have an allowance for those items in my monthly rent that I charge tenants.
A perfect example is that of two brothers I know. Both have similar backgrounds, income and education levels, the biggest difference is that the older brother bought his first house right after college, the younger one never bought a house preferring not to be tied down and not having to worry about the financial strain of unexpected repairs, etc.. Neither brother invested much of their income or saved much, but lived well and spent most of what they earned. And they are in a real estate market that didn't have much of a bubble; sure there was appreciation in r.e. values but not a whole lot more than the rate of inflation.
The older brother now has a house that is paid for (worth around $250K). The younger brother still rents and struggles to make ends meet. The older brother is able to retire since his home is paid for, and live modestly on social security income and a part time home based business. If he sells his home and buys a smaller one since they no longer need the space, they should live comfortably. The younger brother is looking at working until he is no longer able to. Hopefully, he and his wife are able to qualify for either subsidized housing, or they may be forced to move in with their kids.
You are assuming that people will actually invest, whereas the reality is - people these days tend to survive and will invest very little. And pensions and retirement funds are getting less common as a safety net.
Bottom line - renting all your life builds wealth for your landlord. Why would you want to do that?
Granted, I am making a lot of assumptions. But in my experience, a person that would be happy renting an 850 sq ft 2 bedroom apartment for $800/month would not look at buying an 850 sq ft home. They instead buy a 1300 sq ft 3br/2ba place. Their monthly outlay including mortgage + taxes + insurance will be 1.5x that of their rental.
So when I say that based on my experience of buying -vs- renting, this is the particular scenario that I've seen folks buy most of the time. I think you'd agree that in this case, renting would be the better option.
Now if the scenario were someone renting or buying the same exact place, our conversation might be different and I'd agree with you, but in my experience, that is not the predominant scenario. Most folks I've talked to want more home than they would in an apartment.
Then we can have that whole conversation about people investing in retirement instead of leasing a Lexus or BMW... haha, but I suspect you and I are on the same page there. If we're talking about what's better for people long term, obviously keeping your living expenses down and investing in your 401K and/or IRA's are the way to go. Most people don't do this, so we'd be wasting our time. My point was merely that in my opinion, given the choice of renting at 800/month or buying at 1200/month, I would steer most folks toward renting for 800/month and investing 400/month in their 401K. The investment can easily be converted to cash at retirement.
I think in general, we agree, we're just talking about different scenarios.
Granted, I am making a lot of assumptions.
..... I would steer most folks toward renting for 800/month and investing 400/month in their 401K. The investment can easily be converted to cash at retirement
You assume that you'll live long enough to enjoy retirement.
Very optimistic. Like my dad who never indulged in fleeting luxuries so that he has lots of money for retirement but then cancer and early death rendered his plan absurd.
I say go ahead with that BMW lease and live now (while saving a bit for retirement, in case you are lucky).
You assume that you'll live long enough to enjoy retirement.
Very optimistic. Like my dad who never indulged in fleeting luxuries so that he has lots of money for retirement but then cancer and early death rendered his plan absurd.
I say go ahead with that BMW lease and live now (while saving a bit for retirement, in case you are lucky).
Considering the US life expectancy is into the 80's for women and over 75 for men, you'd be a fool to only save "a bit....in case your are lucky". That BMW lease will ensure you're living in a box eating cat food if you turn out to be even just "average" in terms of life expectency.
I'm sorry your dad died early, but that doesn't mean life will turn out the same for you or everyone else. I know many people who lost parents in their 50's or early 60's and are now 10,15,20,25 years older than their parents lived to be.
Plan well for a long retirment and leave whatever money is left to your family or a well-loved non-profit when you go.
If you are going to stay long-term, buy with a 15-year mortgage (more forced savings than super investment). Also you should be able to max on your 401K and Roths - but most people buy too much house and lease or buy new cars or toys...eating out all the time and charging at department stores or a lot of prepared and gourmet items at grocery stores will eat you alive. We have come to expect cell/smart phones, internet, cable, long commutes/tolls/gas and even central heat and air and luxury bathrooms as necessities rather than extras. Just the first three can add up to $300-$400 a month - which could be going into an IRA.
I think you can make money with some rental properties or improving a home in a neighborhood on the way up. But most likely you would have to stay put in one area for a very long time in order to have the knowledge of which properties to buy.
Considering the US life expectancy is into the 80's for women and over 75 for men, you'd be a fool to only save "a bit....in case your are lucky". That BMW lease will ensure you're living in a box eating cat food if you turn out to be even just "average" in terms of life expectency.
I'm sorry your dad died early, but that doesn't mean life will turn out the same for you or everyone else. I know many people who lost parents in their 50's or early 60's and are now 10,15,20,25 years older than their parents lived to be.
Plan well for a long retirment and leave whatever money is left to your family or a well-loved non-profit when you go.
My point was that it is foolish to deprive yourself of nice luxuries, if you can afford them because life expectancy is a statistic, not a guarantee.
And neither is your 401k if the stock market tanks.
That BMW, however, is something you can enjoy now - not just an option for the future.
So yeah, save a "bit" of money for the future but don't fall into the trap of saving, saving, saving and not enjoying life NOW.
Also, judging by your screen name, you live in the Turtle Creek area. Probably own a luxury automobile. You should be investing that money in a 401k and live in a small house/apartment for <$500 a month. Doesn't matter if you can afford your luxury condo - save for a lavish retirement instead!
As others have stated...if you move frequently then home ownership is possibly not for you.
I have no plans to ever leave the DFW area again and I love my neighborhood and its location. This house is not big but it could be extended or I could trade up to a larger home in this area in 5-10 years and not lose anything.
Personally I hate renting not because it's "throwing money away" (it can actually be a shrewd financial move for some) but because I have no control over my environment and I wanted to own. I wanted to put down roots and I wanted a yard. I did not want to share walls with people. Home ownership was the best decision for me to fulfill my wants; not necessarily my needs; but renting a condo/townhome was definitely cheaper.
As for this being the best time to buy...eh...not necessarily. I think earlier this year was the sweet spot with slightly lower prices + tax credit. If you closed between November '09 and April (May? June?) '10 the previous income limit on the $8,000 credit was raised. I'd have gotten the full $8k if I'd waited a few more months to buy. But if I'd bought too soon I'd have had to pay it back. Hindsight is 20/20. But I don't regret my decision. If I'd KNOWN about the income limit raise and waited until late last year, this house would have been sold by that time. And this home is basically perfect for me. So...no regrets.
My point was that it is foolish to deprive yourself of nice luxuries, if you can afford them because life expectancy is a statistic, not a guarantee.
And neither is your 401k if the stock market tanks.
That BMW, however, is something you can enjoy now - not just an option for the future.
So yeah, save a "bit" of money for the future but don't fall into the trap of saving, saving, saving and not enjoying life NOW.
Also, judging by your screen name, you live in the Turtle Creek area. Probably own a luxury automobile. You should be investing that money in a 401k and live in a small house/apartment for <$500 a month. Doesn't matter if you can afford your luxury condo - save for a lavish retirement instead!
Foolishly deprive yourself of nice luxuries? That's a very interesting statement. A luxury to one is not a luxury to another. To me, vehicles are a method of getting from one place to another. As long as that vehicle starts, has a radio and air conditioning, it already is a luxury to me. We must pick and chose our luxuries in life, because you're right, we do need to enjoy life.
My wife and I have several luxuries - we remodeled our master bathroom (in fact, wife took a bath in the jacuzzi tub last night). We remodeled our kitchen, which we use every day. One of our luxuries is coffee... we got engaged in Paris and had many espresso's out of Illy cups while there - so we bought an espresso machine (LaSpaziale Vivaldi S1) and have a double latte each and every morning. But we can afford to do all these things and save for retirement. We could afford BMWs, a bigger home in a more "prestigious" area and some other toys if we wanted to sacrifice our retirement, but securing our potential future is more important to us. We have our little luxuries. We thoroughly enjoy them, but we know which ones are right for us and don't have to keep up with the Jones's. In fact, most folks, unless you come to our home, don't even know about our luxury items. They simply see me driving my 2002 Ford Ranger with 107K miles.
I guess I subscribe to a theory where one shouldn't allocate too much of their income to housing or vehicles. Being "house poor" or "car poor" is not a good way to plan for the future. My wife and I are both long-term planners, so this works for us. Incidentally, odds are that one of us will live into our 70's or 80's. I personally like to listen to statistics and use them to guide my life choices.
Brian
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But I don't regret my decision. If I'd KNOWN about the income limit raise and waited until late last year, this house would have been sold by that time. And this home is basically perfect for me. So...no regrets.
